H&M Scraps 2024 Margin Target Amidst Cost Pressures and Fierce Competition

H&M, the Swedish fast-fashion giant, has scrapped its operating margin target for 2024, acknowledging the challenges posed by increased discounting, rising costs, and fierce competition within the retail industry. The announcement, which came as the company reported lower-than-expected third-quarter profits, sent its shares tumbling by 8% in early trading.

The retailer had previously warned in June that factors such as higher material costs were making its 2024 target of a 10% operating margin more difficult to achieve. However, the decision to completely abandon the target, without providing revised guidance for next year, raises concerns about the company’s ability to execute its turnaround strategy.

CEO Daniel Erver attributed the margin pressure to several factors, including the strength of the Swedish krona, costs associated with shutting down its online outlet Afound, and increased discounting to attract price-sensitive consumers. He acknowledged that H&M has also increased marketing spending, including high-profile events and collaborations, as part of a strategy to elevate the brand’s image.

H&M’s operating margin for the first nine months of the year stood at 7.4%, with a third-quarter margin of 5.9%. The last time the company achieved a double-digit operating margin was in 2017. While maintaining that a 10% margin remains a long-term goal, Erver faces mounting pressure to accelerate the company’s turnaround and demonstrate progress towards achieving this ambitious target.

The company’s struggles highlight the intense competition within the fast-fashion industry, where H&M faces pressure from larger rival Zara, owned by Inditex, and the rise of online players like Shein. High inflation and weakening consumer demand have further complicated the landscape, forcing retailers to compete aggressively on price.

Key Takeaways:

• H&M has abandoned its 2024 operating margin target of 10% due to cost pressures and intense competition.
• The company’s third-quarter operating profit fell short of analysts’ expectations.
• Increased discounting, a strong Swedish krona, and rising costs were cited as factors contributing to margin pressure.
• H&M has increased marketing spending to elevate its brand image, but this has also impacted profitability.
• The company faces intense competition from rivals like Zara and Shein.

H&M’s decision to scrap its margin target underscores the challenges facing the fast-fashion industry, particularly as consumers become increasingly price-sensitive and online competition intensifies. The company’s ability to adapt its strategy, enhance operational efficiency, and differentiate its offerings will be crucial for navigating these headwinds and achieving its long-term profitability goals.